Quiz 3 Flashcards
What is a bond?
A form of interest only bond
Face (Par) Value
Principal amount paid when the bond matures
Coupon
invest payment
Coupon Rate
Some percentage of par value
Maturity
Date when principal amount is to be paid
Yield to Maturity
The discount rate used to value a bond, going rate on the market for bonds of similar risk
How do you value a bond?
PV coupons + PV par or PV annutiy + PV lump sum
What is the indenture?
Basic terms of the bonds
Security
Collateral – secured by financial securities
Mortgage – secured by real property, normally land or buildings
Debentures – unsecured
Notes – unsecured debt with original maturity less than 10 years
Seniority
Your ranking of when you get your bond`
Repayment
Sinking fund
Call premium
permit the security issuer to redeem the securities before they mature.
Deferred Call
permit the security issuer to redeem the securities before they mature.
Treasury Securities
= Federal government debt
Treasury Bills (T-bills)
Pure discount bonds
The original maturity of one year or less
Treasury notes
Coupon debt
Original maturity between one and ten years
Treasury bonds
Coupon debt
Original maturity greater than ten years
2 main bond rating agencies
Moody and Standard & Poor’s
Investment grade
AAA Best Quality
AA High Quality
A Upper Medium Grade
BBB Medium Grade
Junk
Below investment grade (Starts at BB - Speculative)
Debenture
a type of debt instrument that is not secured by physical assets or collateral
Ex. T-Bills and T-Bonds
Zero coupon bond
A bond in which no periodic coupon is paid over the life of the contract. Instead, both the principal and the interest are paid at the maturity date. Pays no interest
Floating-rate bond
Variable interest rate
Plain vanilla bond
Fixed interest rate
Convertable bond
is one way for a company to minimize negative investor interpretation of its corporate actions.
Read more: Convertible Bond https://www.investopedia.com/terms/c/convertiblebond.asp#ixzz5AJS6e3M1
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Put Bond
A put bond is a bond that allows the bondholder to force the issuer to repurchase the security at specified dates before maturity.
Realized Yield
The yield you actually earn for the period in which you hold a bond. Calculated when you sell a bond before its maturity date
Common Stock
Equity without priority for dividends or in bankruptcy
Cumulative voting
A procedure in which a shareholder may cast all votes for one member of the board directors
Straight voting
A procedure in which a shareholder may cast all votes for each member of the board of directors - freezes out minority shareholders as the majority has control over who gets elected
Staggered voting
only a fractured of the directorships are up for election at a particular time
Proxy voting
A grant of authority by a shareholder allowing another individual to vote on behalf of that shareholder
Classes of stock
companies may have different classes of stock, typically created with unequal voting rights (Class A vs. Class B)
Preferred Stock
Stock with dividend priority over common stock, normally with a fixed dividend rate, sometimes without voting rights
Primary Market
The market in which new securities are originally sold to investors
Secondary Market
The market in which previously issued securities are traded among investors
Dealers
An agent who buys and sells securities from inventory bid price vs. ask price (car dealer)
Broker
An agent who arranges security transactions among investors - earns a commission (real estate agent)
